Are U.s. Savings Bonds Right For You?
Sunday, August 10th, 2008 Subscribe To Our Feed
Why invest in US Savings Bonds? It is a question that not many put much thought into these days, with everyone taking their chances gambling with stocks, hoping and praying that they will strike it rich with that “money in the bag” hot tip. While it may not be as exciting as investing in stocks, bonds can play a very important role in your portfolio.
So before you get stuck in the stocks vs bonds debate, lets have a look at the benefits of bonds.
First, lets begin by asking a basic question: What is A US Savings Bond?
Generations ago when only rich people could purchase common stock, U.S. Savings bonds were a very popular long term investment, at a time when long term meant longer than a few weeks. So while there are several savings bonds options available, the ones backed by the United States government are the best quality. At its most simple, a savings bond is a promise that if you lend money, you will get it back with interest. The risk is that the entity receiving the money may not be able to pay it off as agreed. With the United States government, the danger is minimal. Short of the American government declaring bankruptcy, you will get your money back with interest.
Simply stated, by purchasing a US savings bond, you are lending your money to the government. In these days of large deficits, its more preferable for the US government to raise funds via savings bonds, than to have to go to foreign lenders (who normally insist on a much higher rate – causing US taxpayers to pay out even more money in taxes).
Whats In It For You?
Its all about the magic of compounding interest. If you were start off with a $1000 initial investment, and made monthly deposits of $50, you would have a nest egg of almost $20 000 after taxes.
Increase the interest rate to 3% and you’ll have over $22 000. Think you can put away $100 a month? Say hello to over $42 000. There are also some tax benefits regarding education savings that you’ll want to look into.
These may not seem like huge numbers, but, its a lot larger than your own bank account is receiving. Think about your kids and their education? $42 000 is a large down payment on a great education. An added bonus: you can purchase them at your bank.
For those who don’t like risk, you wont find a more risk adverse investment than savings bonds. Each type of investment has its own purpose. If you are looking to put some money away, US savings bonds are among the best investments you can make. If you are looking for a quick buck, this is not going to work for you. If you’re a trader like myself, taking your profits off the table and socking them into a savings bond is a great strategy to continue to build your capital, without putting your money at risk.
By buying U.S. savings bonds, you’ll help to ensure that your tax bill doesn’t have to be higher and know that your money is safe.
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